Test bank for principles of economics 2nd by mankiw chapter 31a

Chapter 31/Aggregate Demand and Aggregate Supply ❖ 87

Chapter 31Aggregate Demand and Aggregate SupplyTest A1

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Business cyclesa. are explained mostly by fluctuations in corporate profits.b. no longer are very important due to government policy.c. are fluctuations in real GDP and related variables over time.d. All of the above are correct.ANSWER: c. are fluctuations in real GDP and related variables over time.TYPE: M KEY1: D SECTION: 1 OBJECTIVE: 1 RANDOM: Y2

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Investment is a

a. large part of real GDP, so it accounts for a small share of the fluctuation in real GDP.b. large part of real GDP, yet it accounts for a large share of the fluctuation in real GDP.c. small part of real GDP, so it accounts for a small share of the fluctuation in real GDP.d. small part of real GDP, yet it accounts for a large share of the fluctuation in real GDP.ANSWER: d. small part of real GDP, yet it accounts for a large share of the fluctuation in real GDP.TYPE: M KEY1: D SECTION: 1 OBJECTIVE: 1 RANDOM: Y3

Most economists believe that classical economic theory is a good description of the world ina. the long run, but not in the short run.b. the short run, but not in the long run.c. the short run and in the long run.d. neither the short nor long run.ANSWER: a. the long run, but not in the short run.TYPE: M KEY1: D SECTION: 2 OBJECTIVE: 2 RANDOM: Y 5

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The effect of an increase in the price level is represented by aa. shift to the right of the aggregate demand curve.b. shift to the left of the aggregate demand curve.c. movement to the left along a given aggregate demand curve.d. movement to the right along a given aggregate demand curve.ANSWER: c. movement to the left along a given aggregate demand curve. TYPE: M KEY1: D SECTION: 3 OBJECTIVE: 3 RANDOM: Y

People will spend less if the price levela. rises, making the dollars they hold worth more.b. rises, making the dollars they hold worth less.c. falls, making the dollars they hold worth more.d. falls, making the dollars they hold worth less.ANSWER: b. rises, making the dollars they hold worth less.TYPE: M KEY1: D SECTION: 3 OBJECTIVE: 3 RANDOM: Y7

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A decrease in U.S. interest rates leads to a. an appreciation of the dollar that leads to smaller exports.b. an appreciation of the dollar that leads to greater net exports.c. a depreciation of the dollar that leads to smaller net exports.d. a depreciation of the dollar that leads to greater net exports.ANSWER: d. a depreciation of the dollar that leads to greater net exports.TYPE: M KEY1: D SECTION: 3 OBJECTIVE: 3 RANDOM: Y8

In the long run, technological progressa. makes the price level rise, while increases in the money supply make prices fall.b. makes the price level fall, while increases in the money supply make prices rise.c. and increases in the money supply both make the price level rise.d. and increases in the money supply both make the price level fall.ANSWER: b. makes the price level fall, while increases in the money supply make prices rise.TYPE: M KEY1: D SECTION: 4 OBJECTIVE: 3 RANDOM: Y

The misperceptions theory of the short­run aggregate supply curve says that output supplied will decrease if the price level increasesa. more than expected so that firms believe the relative price of their output has increased.b. more than expected so that firms believe the relative price of their output has decreased.c. less than expected so that firms believe the relative price of their output has increased.d. less than expected so that firms believe the relative price of their output has decreased.ANSWER: d. less than expected so that firms believe the relative price of their output has decreased.TYPE: M KEY1: D SECTION: 4 OBJECTIVE: 3 RANDOM: Y13

The sticky price theory of the short­run aggregate supply curve says that when the price level rises more than expected, some firms will have a. lower prices than they desire, which increases their sales.b. lower prices than they desire, which depresses their sales.c. higher prices than they desire, which increases their sales.d. higher prices than they desire, which depresses their sales.ANSWER: a. lower prices than they desire, which increases their sales.TYPE: M KEY1: D SECTION: 4 OBJECTIVE: 3 RANDOM: Y15

An increase in the expected price level shifts short­run aggregate supply to thea. left and an increase in the actual price level shifts short­run aggregate supply to the left.b. left and an increase in the actual price level does not shift short­run aggregate supply.c. right and an increase in the actual price level shifts short­run aggregate supply to the right.d. right and an increase in the actual price level does not shift short­run aggregate supply.ANSWER: b. left and an increase in the actual price level does not shift short­run aggregate supply.TYPE: M KEY1: D SECTION: 4 OBJECTIVE: 3 RANDOM: Y

According to the graph, a decrease in the money supply would move the economy from A a. back to A in the long run.b. to B in the long run.c. to C in the long run.d. to D in the long run.ANSWER: c. to C in the long run.TYPE: M KEY1: G SECTION: 5 OBJECTIVE: 4 RANDOM: N GRAPH: 118

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According to the graph, if a change in aggregate supply shifts the economy from C to D, a government concerned about employment might use fiscal policy to move the economya. to A.b. to B.c. back to C.d. to D.ANSWER: a. to A.TYPE: M KEY1: G SECTION: 5 OBJECTIVE: 4 RANDOM: N GRAPH: 119

Suppose the economy is initially in long­run equilibrium and aggregate demand rises. Compared to where the economy was before the change in aggregate demand, in the long run pricesa. and output are higher.b. and output are lower.c. are higher and output is the same.d. are the same and output is lower.ANSWER: c. are higher and output is the same.TYPE: M KEY1: D SECTION: 5 OBJECTIVE: 4 RANDOM: Y

Which of the following has been suggested as an important cause of the Great Depression?a. a decline in the money supplyb. a large decline in government expendituresc. an increase in the relative price of oild. All of the above are correct.ANSWER: a. a decline in the money supplyTYPE: M KEY1: D SECTION: 5 OBJECTIVE: 4 RANDOM: Y22

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During World War IIa. government purchases of goods and services roughly doubled.b. the economy’s production increased almost fivefold.c. prices rose about 20 percent.d. None of the above is correct.ANSWER: c. prices rose about 20 percent.TYPE: M KEY1: D SECTION: 5 OBJECTIVE: 4 RANDOM: Y23

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Suppose that there has been bad weather, a decrease in the availability of oil or some other temporary increase in firms’ costs. In the short run pricesa. fall and output rises.b. rise and output falls.c. and output rise.d. and output fall.ANSWER: b. rise and output falls.TYPE: M KEY1: D SECTION: 5 OBJECTIVE: 4 RANDOM: Y24